Instead of Suburbia: Can Phoenix Discourage Sprawl Now That the Housing Market is Heating Up Again?

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Posted on: February 05, 2014

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Instead of Suburbia: Can Phoenix Discourage Sprawl Now That the Housing Market is Heating Up Again?

The suburbs are dead. That was the rallying cry after the housing crash, when subdivisions turned into ghost towns. The alternative? Transit-oriented development near urban centers. Welcome to Phoenix, the home of megasprawl, which is putting TOD to the test.

Mark PetermanThe view from the Portland Place Condominiums in downtown Phoenix.

Five long years ago, when the housing market was booming, no city was booming more than Phoenix. At least that was the common perception. In truth, what was booming was the Arizona desert, as developers threw square mile upon square mile of new homes into undeveloped land on the edge—or out beyond the edge—of a metropolitan area already synonymous with sprawl. At the peak, greater Phoenix was averaging 60,000 new homes per year, according to Michael Trailor, director of the Arizona Department of Housing.

Then, as everyone knows, the bubble burst. Home values in the Phoenix area fell by 55 to 60 percent. Some far-flung developments went from grand opening to near ghost town in a matter of months, entire blocks of vacant, earth-tone homes looking as if they would soon melt back into the desert. At the worst, around 100,000 homes stood empty in the Phoenix metroplex.

Phoenix may have been an extreme case, but a similar narrative was playing out in suburban areas around the country, which were disproportionately affected by the bust. Analysts declared that the age of sprawl and exurban development was largely over. Such predictions seemed reasonable at the time, but what would happen once the market recovered and developers started building again?

Today, the Phoenix real estate market is bouncing back hard. Prices have risen by as much as 35 percent in the last year, and sales have picked up significantly. New home developments are once again sprouting out on the fringe where greater Phoenix bleeds into the Sonoran Desert landscape.

Something else is going on, however. As they emerge from the Great Recession, Phoenix and the adjoining cities of Mesa and Tempe are focusing development efforts on their urban cores, with projects concentrated in the corridor around the regional light rail system, which runs from Tempe into downtown Phoenix. Political leaders and several local developers have embraced the virtues of transit-oriented development, walkable neighborhoods, and higher-density building. “The character (of Phoenix) has changed tremendously over the past year or so,” says Craig Randock, AIA, president of AIA Arizona and design studio leader at
HDR in Phoenix. “You’re really seeing the interest in development here in the city, and there are some very smart, young developers involved in that.”

The same is true in Tempe and Mesa, smaller but still sizable communities with their own city centers. The move had been underway before 2007, but Bonnie Richardson, AIA, principal planner for the city of Tempe, believes the economic downturn gave political leaders and some developers a chance to reflect. “Our modus operandi was that we just kept widening freeways, widening freeways, and building farther out. Things were happening very fast, and it was easy just to keep doing what we’d always done,” she says. “It seems that people got more time to think about it as things slowed down, and they started thinking about doing more with less, so they were more in tune with what we’re talking about in terms of development.”

A metroplex long celebrated as a bastion of uncontrolled sprawl, Phoenix is a surprising test case for the challenges city officials and designers face in promoting urban infill and transit-oriented development. How much will the city’s longstanding model of exuburban development change now that the Great Recession is over?

Mark PetermanMesa Mayor Scott Smith at the Encore on First project

On a balmy afternoon last December, the four partners of Mesa Housing Associates stood proudly in front of Encore on First, the first major privately financed development in downtown Mesa in more than 25 years. With Mayor Scott Smith, city council members, and Trailor all lined up, they cut the ribbon to the 81-unit, independent living multi-occupant building designed by SERA Architects of Portland, Ore.
The five-story neomodern building incorporates solar panels sufficient to offset 50 percent of the energy load from common areas, as well as roof and wall materials designed to reduce the urban heat island effect—important in a city with an average daily high in July of 106 degrees. But the building’s significance lies not in its energy features, but in the role local officials hope it plays in revitalizing Mesa’s center. “This truly is a transformative project,” said Mayor Smith. “It changes the way we think about our downtown, our city.”

The nearest light rail station, located only a couple of blocks away, isn’t scheduled to open for another year or two. Still, Smith said, “Light rail sets the stage.” At least four other residential projects are already planned near the line in Mesa, and demand for housing along the entire 20-mile light rail system and its scheduled extensions appears to be strong.

A study by the consulting firm BAE Urban Economics found an unmet demand in 2010 for about 61,000 new housing units within a half-mile of the light rail in Phoenix, with demand for an additional 70,000 units by 2040. “There’s not even enough dirt to build that many housing units, but it shows that the demand is really there,” says Shannon Scutari, director and co-founder of the Sustainable Communities Collaborative, a nonprofit organization set up by the three cities and other groups to promote development along the light rail.

Higher density infill development has been encouraged by financial incentives. The Arizona Department of Housing awards bonus points for transit-oriented projects seeking to qualify for federal tax credit financing, which states direct, if the projects are located within a half-mile of the light rail corridor. The Phoenix-based Raza Development Fund and New York–based Local Initiatives Support Corporation (LISC), two lenders that provide credit for low-income housing and underserved areas, have committed $20 million to a financing fund to assist development along the corridor. “We have 15 projects since we launched the fund two-and-a-half years ago that the fund’s partners helped to provide support to get off the ground,” Scutari says.

Encore on First received pre-development financing through LISC, which Mesa Housing Associates has since repaid, and also qualified for federal tax credit financing. The tax credits provided a solid financial underpinning to the project, but Charles Huellmantel, a local attorney and partner in Mesa Housing Associates, says the motivating force was a conviction among the partners to bring new life to the downtowns of cities like Mesa or Tempe, where a similar project, Encore on Farmer, opened in 2011. “We don’t do the suburban thing. We do the urban thing,” he says. “That’s what we’re excited about.”

After the press and dignitaries had departed the ribbon-cutting, Huellmantel and Todd Marshall, another of Encore on First’s developers, were eager to show me around the project and talk about how they had integrated the building into the neighborhood. They were able to narrow the street (although not as much as they had hoped) and widen the sidewalk to create a more inviting streetscape for pedestrians. The sidewalks in front of the building were segmented and laid in a textured concrete, aesthetically more pleasing than the flat industrial concrete commonly used. In both the building and its courtyard, the design incorporates sheets of colored glass that echo the Mesa Arts Center about a block away. The glass walls in the public areas on the ground floor and a terrace on the second floor both open up the building to the street, promoting a sense of connection with the neighborhood.

Encore on First may be intended for older residents, but Huellmantel and Marshall both believe they’re helping to define a new urban landscape. “There will still be people heading out to Sun City,” Marshall says of the famous retirement community about a 30-minute drive from downtown Phoenix. “But there’s a big cultural shift and it’s coming with the next generation. We hope to be part of that future.”

Mark PetermanDeveloper Todd Marshall at the Encore on First project.

Phoenix is not alone in trying to build urban den sity around mass transit as the country emerges from the recession. “Denver is trying to do it; Dallas is trying to do it. The older cities in the Midwest and West are trying to do it. And it’s working,” says Stephen Melman, director of economic services at the National Association of Home Builders (NAHB). Still, he cautions, the shift shouldn’t be overstated. The NAHB’s most recent national consumer survey shows that the largest share of Americans still desire a single family home in the suburbs.
But for the next generation that Marshall referred to, the attractions of city living are growing. “In certain parts of the country we’re seeing, especially among younger households, a move toward gentrification—more inner city, industrial-style design, more condos,” Melman says. Multifamily construction was a bright spot coming out of the recession, he adds, largely because of the demand for rental property. “Young Millennials are mostly renting,” he says. “They haven’t jumped into purchasing yet, but they’re tending toward the urban landscape when they do.”

As significant as the public attitude, at least in Phoenix, is the recognition among community and state leaders that old patterns of development are becoming unsustainable. “For 70 years, we’ve been building farther out, through orchards and agricultural fields and out into the desert,” Trailor says. “The fringe has changed. Today, people are having to drive an hour to get to work. Some people are spending 60 percent of their income on housing and transportation costs.” Noting projections that show the Phoenix metro population nearly doubling in the next 30 years, he asks, “Are we just going to double the number of freeways? Double the number of cars?”

Living closer in can bring the combined cost of transportation and housing down to about 45 percent, Trailor says. He also noted that a study found that property values fell 37 percent less during the crash for real estate located within the light rail corridor and that default rates were significantly lower. Trailor has worked in development, in and out of government, for 30 years, and believes numbers like that indicate the importance of the mass transit effort. He calls construction of the Black Canyon Freeway, the first major superhighway in the area (which eventually became part of the interstate system) the most significant transportation project in its history, because it set the pattern for urban expansion that persisted for decades. “The next most significant transportation infrastructure development was light rail,” Trailor says.

Developers who have built around the light rail, however, have found that new attitudes do not necessarily sweep aside longstanding challenges to building in existing neighborhoods.

“Back in the day, Portland Street was the place to live,” says Timothy Sprague, standing along the avenue in downtown Phoenix on a sun-filled afternoon. “Around the turn of the century, this was a prosperous neighborhood with doctors and people like that living here. Then later, this area fell on hard times and it really got dangerous.”

Sprague provided his capsule history in front of Portland Place Condominiums, his high-end residential project completed in 2007. It includes 54 units, 46 condos in a six-story tower and eight brownstone flats on the street front. Most are about 1,500 square feet and went for $400 a square foot. All but two units were sold before Portland Place was finished. The light rail station, right at the end of the block, opened in 2008. “We were here first,” Sprague says smiling.

A laid-back type who plays in a local rock band when he’s not heading multi-million-dollar projects, Sprague has been in development for 30 years in Phoenix. “Prior to 2003, most of my development was out on the periphery of town,” he says. But in the late ’80s and ’90s, Sprague and his partner, John Hill, were involved in two projects in the Portland, Ore., area as that city was establishing its MAX Light Rail system. “It was just really an education for us to see what could happen when you get good light rail transportation.”

In 2003, Sprague and Hill responded to a request by the city of Phoenix for transit-oriented development in the city’s Roosevelt Historic District, which included Portland Street. “All my development friends said, ‘Are you nuts going downtown?’ ” he remembers. In the beginning, Sprague and Hill had reasons to wonder if their friends weren’t right. They had to get 14 variances from zoning requirements to build, including a local height and density restrictions. The project eventually required special use zoning: urban residential.

Curt Upton, a Phoenix city planner, says the problems Portland Place faced are not unusual. Upton heads Reinvent PHX, a partnership between the city, the U.S. Department of Housing and Urban Development, Arizona State University, and other local groups, to plan and promote transit-oriented development without displacing local residents or destroying the character of historic neighborhoods.

Reinvent PHX has a plan for five walking districts along the rail. Each has different challenges, but zoning is an overarching issue. “The basic zoning is not supportive of a lot of things the market is demanding, particularly along our light rail system,” Upton says. “It might sound like a no-brainer, but it’s a very difficult and complicated thing to change zoning regulations.”

In part that’s because residents are often wary of any change. “When you do infill development, you are really changing somebody’s neighborhood,” Sprague says. “As a result of that, you have to listen. You really have to listen.” Portland Place originally faced a skeptical reception from the local neighborhood homeowners association, and Sprague says the project was modified to address some of their concerns. “It was very important to them that the building not be sealed off from the street,” he says “One of the first things you’ll see is that it’s not fenced in at all.”

Mesa Housing Associates also faced public doubts about the impact of narrowing First Avenue and the fact they were replacing some parking for the building site. Working carefully with city officials to make sure the public understood the reasons behind design decisions was a key to bringing the project to life, Huellmantel and Marshall say.

Sprague attended homeowner association meetings to build a relationship with local community leaders, even volunteering to serve as a bartender at one of their events. Eventually he was elected to the association board. Portland Street also sought to embrace the character of its location, the Phoenix arts district. When the project began “we opened up an art gallery that doubled as a sales office,” Sprague says. “We literally had a curator.”

The view from Portland Place’s rooftop pool is of Phoenix’s central city skyline. Arizona State University has taken advantage of the light rail to open a downtown campus that includes a biotech center, connected to its main campus in Tempe by the rail system. Downtown has seen an influx of jobs and residents as a result. Sprague is now planning two larger residential buildings on vacant land right next to Portland Place, 12- and 14-story towers that will also include restaurants along the street.

As the economy heats up, he expects that exurban development in the area will once again accelerate, especially if gas prices remain relatively stable. But Sprague believes the recession was one factor that did cause many developers to think more deeply about the future of their community, and he thinks the results are already apparent. “What has happened is we are reurbanizing the country’s largest suburb, if you will,” he says. “Downtown is alive here. It really is … I do this very selfishly. I want to live in a place that’s fun.”

City or Suburbs? What Home Buyers Want The American dream of a single-family home in the burbs has been battered by the Great Recession, but an exhaustive survey of consumers shows that it survives, even if the vision has been pinched around the edges. The results come from the National Association of Home Builder’s study “What Home Buyers Really Want,” compiled through an online survey of 3,682 recent and prospective home buyers in 2012.

Urban high-density development has gained steam in many cities. For 36 percent of Americans, however, the study found that a house in an outlying suburb remained their preferred choice. Another 27 percent wanted to live in a rural area, while 30 percent would like to live in a close-in suburb. Only 8 percent chose a “central city” as their choice for a residence. “By and large, they favored less density. You go into some gentrifying areas, and it seems to fly in the face of that. But for those who want to buy a new home, the preference was for less density,” says Stephen Melman, NAHB’s director of economic services.

As low as it is, that 8 percent still represents the highest total in more than a decade. The study found that certain types of buyers were more interested in buying in urban centers. Among buyers who expected to spend $500,000 or more on a home, the portion that wanted a home in a city center jumped to 16 percent.

In part, Melman says, the preference lower-income buyers show for suburban or even rural housing probably reflects an assessment of purchasing potential—farther out equals a cheaper-per-square foot cost. Still, minority groups also show a higher preference for urban living, especially Hispanics. Nineteen percent would prefer to live in a city center.

Despite a seemingly widespread belief among developers that “empty nesters” are more attracted to the convenience of living close to restaurants, theaters, and other urban amenities, the study found that city centers were no more popular, on average, with people 55 and older. Still, Scott Thomas, the Putle Group’s national director of architecture, says the home building company has seen increased demand for smaller-scale versions of its Del Webb active adult communities. These can be located closer to downtowns and employment hubs, which is important to buyers because many still work.

The NAHB study indicates the resistance to urban living may have more to do with high density than location. While only 19 percent found living in a neighborhood with smaller lots or attached or multi-family dwellings desirable, 38 percent said they wished to live in an older, developed neighborhood.